In property insurance, what does Coinsurance mean?
Coinsurance is an agreement by which the insured, in consideration of a reduced rate, agrees to carry an amount of insurance equal to a percentage of the total insurable value of the property at risk. If at the time of loss, the insurance carrier determines you were not in compliance with the coinsurance clause, the company will pay your claim only in proportion to the amount of coverage you carry. The following equation is used to determine the amount paid for a covered loss: Amount of Insurance Carried x Loss = Amount of Recovery Amount of Insurance Required For example, assume that a commercial building has a replacement cost value of $1,000,000 but its owner has insured it for only $700,000. If a policy is issued with an 80% coinsurance clause, the required amount of insurance based on replacement cost value is $800,000. Therefore if a $50,000 loss occurs, only $43,750 will be paid, based upon the following illustration: $700,000 x $50,000 = $43,750 $800,000 Since the coinsurance r
